I think the idea was you butter the cat's paws before it goes out for the first time - it can then follow the trail of butter back home if it gets confused as to where it is.
I think its pretty much an old wives tale though - back in the day people were almost religious about chucking the cat out for the night and so kitty probably would be very confused that first night. Now the advice is to keep the cat in for a few weeks so it gets to accept the house as its home and has been able to get a grip on its surroundings through the windows before going out.

can anyone tell me why putting butter on cats paws when moving to a new house is supposed to help them to settle in?

It doesn't, it's an old wives take that's as effective and intelligent as eating certain things to affect the gender of a baby or going into the cold after washing your hair causes flu etc.

A cat in a new house will first try to go back home again. You may have moved house, but as far as the cat's concerned, its territory is still waiting for it and currently open to invasion! Even if they don't know the way, they'll try, which is how they can get lost. So you need to keep the cat inside to get used to the idea of staying there with familiar people. It'll gradually get used to the change but still pine for its old home for a long while.